"A Series of Fateful Decisions"
The signs in the brewery say “Widmer”
When I received the news about the sale of Portland’s biggest brewery to Anheuser-Busch, many thoughts raced through my mind. I spent a year steeped in all things Widmer as I wrote Kurt and Rob Widmer’s biography. Memories of all the people I spoke to came rushing back. I could see myself sitting with Rob and Kurt in a brick-walled room at the brewery listening to their recollections. I heard the protective, sometimes wistful voice of former CEO Terry Michaelson. I remembered the tenderness Barb and Ann, their wives, expressed when they recalled the 35-year adventure.
“I think the interesting thing for you is where do you stop the Widmer story? If you go up to the present day, it’s not really over, but it gets substantially less glamorous as you go after about 2010 or 2012—it really becomes less and less about Widmer.”
But the first person I thought of was Sebastian Pastore, who had been hired early on straight out of Reed College. It was Sebastian’s first real job, and he quickly became one of the most trusted members of the Widmer inner circle. When it came time to buy the new, industrial-sized brewery In the mid-1990s, Kurt put Sebastian in charge and let him make all the decisions. He worked at the company 24 years before leaving in 2014. And it was Pastore who spoke most frankly and presciently about the future of the company. His discussion of the course of events prepared me for this sale, and hung grimly over my year documenting Kurt and Rob’s lives. As a coda to the sale, I’ll quote from our interview in February of 2017.
A Brief History of Craft Brew Alliance
For those not intimately familiar with the story, Widmer Brothers became a part of an evolving CBA. Originally called Craft Brands Alliance, it began in 2008 as a loose partnership with Seattle’s Redhook, which like Widmer had sold a minority stake to Anheuser-Busch, to combine sales and marketing operations. In 2008, it became a single company (called Craft Brewers Alliance) headquartered in Portland. The two companies were of a similar size at that point, but Widmer Brothers soon eclipsed Redhook. CBA had been contract-brewing Kona beer for the mainland since 2001. In 2010 the company acquired Kona outright. It owned a portion of Goose Island and sold it to ABI in 2011. In 2012 it launched a gluten-free brand and in 2013 a cider brand. More recently it began acquiring smaller breweries.
Critically, though, the Widmer brand had started as the dominant identity for the company. All the beer was brewed at Widmer, on equipment designed to make Hefeweizen. The brewery was staffed by Widmer folks. The on-site gasthaus served only Widmer beer. To people in Portland and to an extent at the brewery, it was as if Widmer had purchased and were brewing a bunch of other brands. Until Monday, if you traced the various branches of CBA (which came to be called Craft Brew Alliance around 2012), eventually you came to the trunk and roots, and those were Widmer Brothers.
Unfortunately for the folks in Portland, Widmer didn’t stay the dominant brand in the portfolio. In 2013, as longtime CEO Terry Michaelson was stepping down, Kona equaled Widmer. In the Andy Thomas era that followed, Widmer has declined precipitously, while Kona has soared. Thomas even pursued a “Kona plus” strategy. In my own discussions with folks in the brewery, during his ascent, the company actively ignored the Widmer brand, letting the flagship Hefeweizen—the best-selling beer in Oregon—languish, all of which hastened the decline.
This created a sense of dislocation at the brewery—at least to my eyes. Kurt Widmer stayed at the brewery another year, and Rob may still be there (he left this spring to hike the Pacific Crest Trail, a six-month endeavor). But sometime between 2014 and now—it probably varied by employee—that brewery quit being Widmer Brothers and really did morph into CBA. Toward the end of our conversation, Pastore expressed a sentiment I suspect was widespread: “Twenty-four years. I would drive to work and look down and say, ‘I built that.’ I did not want to go, but it would have been untenable.”
The Moment the Die Was Cast
I will now largely turn this over to Sebastian, who told the story more wholly than anyone I spoke to. He started by observing, “When I look back on Widmer, I see it as a series of fateful decisions that resonated for decades afterward.” The first two were the decision to expand massively and to locate the expansion across the street from the Smithson and McKay building.
“And the third fateful decision was [accepting Anheuser-Busch’s minority stake offer]. We had flirted with Miller Brewing Company prior to doing a deal with A-B and had an offer on the table. A pretty significant offer. I think it was 70 million dollars—it was a lot. And we turned it down. Most of us felt they turned it down because they really liked running the brewery. Kurt would have been in his 40s at that time, and Rob might even have been in his late 30s, and they were nowhere near done. They didn’t know what else they would have done. So they said no.
“Then they did the Anheuser-Busch deal. By the time we did it, we really needed the money. We needed it because we’d made the decision to build this enormous brewery and get into bottles. And then the Anheuser-Busch deal defined the rest of the brewery’s history in a bunch of different ways. A) because they were a significant shareholder. And the thing most people don’t realize about the A-B deal is it’s not too much of an exaggeration to say that CBA only had one customer. Every single case of beer that CBA sold was sold to Anheuser-Busch and then resold to all of their distributors. We operated under something called a Master Distribution Agreement, whereby they were in effect a master distributor. From a wholesaler’s perspective, we really were an Anheuser-Busch product.
This was, of course, hugely important to negotiations. “Think about the leverage you have when you’re the only customer,” Pastore said. Kurt Widmer and August Busch III had a wonderful friendship and admired each other. During the period when the company was run out of St. Louis, this relationship was great. But in 2008, A-B was taken over by the companies that would reconstitute AB InBev. And when that happened, the new company exercised its leverage.
“From 1997 until say the InBev deal, it was really all upside. It was a great honeymoon period until the talks with Redhook. Anheuser-Busch had equal ownership, roughly, in both companies. Widmer was the good child; they were cooperative, profitable, they had a strategy, they were somewhat deferential. Paul Shipman ran an unprofitable company, was uncooperative, and [told] them to go fuck themselves at any opportunity. They wanted to get rid of him but couldn’t and came up with this idea of merging with them.
“You have to remember that they were a 16 billion dollar company and they owned a part ownership stake in two, at that time, maybe 150 million dollars together. We were a pimple on their butt. And they had two pimples. Wouldn’t it just be a lot simpler if we rolled these two together and had the compliant team manage it? And so they tried that; those discussion started in the late 90s.”
Every ten years, Anheuser-Busch and Widmer/CBA signed a distribution deal like the one Pastore outlined. In 2016, the one they signed gave ABI the right to purchase CBA within three years. Over that period of time, CEO Andy Thomas guided the company toward that purchase. And, as Pastore told me almost three years ago, it basically had to go that way.
“Because they had a minority ownership, 32 or 33 percent, and two seats on the board, in theory they weren’t in control, but one of the great dynamics behind the scenes was [that] in effect they were in control of the company. They had rights in the investment agreement that governed resale, they were our only customer, and they could in theory threaten to do things to us like tell their wholesalers not to promote our product anymore.
“It also limited our appeal as a company because no one else was interested in coming in as an investor while Anheuser-Busch was involved—because we have this long-term agreement, changing wholesalers is incredibly difficult, Anheuser-Busch was taking millions of dollars a year [for distribution], and if someone else had come in, they’d have bought that. And if you read what’s going on in the company to this day, they’ve really come full circle and concluded that their best option is to sell it to Anheuser-Busch.”
Afterword
In many ways, the story of the company founded by Rob and Kurt Widmer ended successfully. If you read Josh Noel’s account of Goose Island, founder John Hall was actively steering the company toward acquisition. That’s what happened to businesses. Building something from nothing and selling for a huge profit is a win. Even the way the company shifted feet from Widmer to Kona is impressive. That was a connection forged through personal friendships, and bringing Kona up was the brothers’ doing. This week a company that Kurt and Rob built from an initial investment of around $60,000 sold for $320 million. How on earth is that not a win?
As Pastore describes, however, it may well not have been the inevitable conclusion the Widmers drew up when they signed that minority agreement. Paul Shipman, who founded Redhook, was certainly not happy with how things turned out. He called the decision to partner with AB “the defining error of my career.” I don’t think the Widmers would agree, even now. Nothing in our interviews suggested regret or even equivocation.
But it does go to show that decisions have consequences that may not be evident for years or even decades. Widmer started discussions with A-B in 1995 (finalizing the partnership in 1997) and the brewery wasn’t fully acquired for another quarter century. That’s a long time for things to play out, but here we are.